A New Big Idea: Create Jobs and Reduce Poverty by Doubling the Charitable Deduction

Interesting, a budget expert at the Brookings Institution has proposed doubling the tax deduction for charitable giving to help the economy. Would this work? Would it be just another way for people with means to circumvent paying taxes without having any appreciable impact on our economy? How could it be implemented without making the tax code exponentially more confusing? Tax breaks sound great, but the devil’s in the details.

From Huffington Post.com:

"We need to get them to spend that money instead of socking it away, and we need to get them to spend it on socially beneficial things," Sawhill told The Huffington Post. "This is simply a device to pry that money out of them."

There are lots of details still to be worked out. For instance, how do you limit the doubled deduction to donations that will in fact create jobs and/or provide services to the needy? Is there any way to only subsidize contributions beyond what people were already intending to give?

But there's something undeniably exciting about Sawhill's proposal -- and potentially appealing to people across the political spectrum.

"It strikes me as a terrific idea, an absolutely terrific idea," said Norman Ornstein, a resident scholar at the American Enterprise Institute. "You're going to get a significant increase in charitable contributions. And you're going to end up with the organizations that get those contributions being able to do more work and so they're going to hire more people."

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Auto Sales Start 2011 on a Strong Note

According to CNN, automakers saw significant sales increases last month. It appears that Americans are finally returning to car dealerships, as the gains were driven by retail sales. General Motors, Ford, and Chrysler Group all exceeded industry expectations. Good news? Of course. But I’m officially having trouble keeping track of good news/bad news for our economy.

CNN reports:

Industry wide, U.S. sales rose 17% in January, an annual sales pace equal to 12.6 million vehicles when seasonal factors are taken into account, according to sales tracker Autodata. About 820,000 total vehicles sold in the month, which is the best January tally in three years.

"You can't get those kind of numbers without consumer demand," said Jesse Toprak, vice president of industry trends at TrueCar.com.

January is typically a slow month for auto sales, and the robust performance last month raised hopes that 2011 could mark a turnaround for the auto industry.

"The very positive sales news being issued by many automakers today is further proof of the suspected thaw in this once-frigid sector of our general economy," said James Bell, a market analyst at Kelley Blue Book's kbb.com.

But the industry is still recovering from the recession, when sales evaporated, and GM and Chrysler were forced into bankruptcy.

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5 Signs the Economy is still Struggling

With the November elections just a few weeks away, some politicians want Americans to believe that the U.S. economy is recovering. However, according to a report from Rutgers University, over half of American taxpayers believe the economy has undergone a fundamental and lasting change. Yesterday, I posted this blog entry taking a look at some of the signs of economic recovery, however, not all signs are good. There are also plenty of reasons to still be concerned about the economy.

Auto Sales

We all know that the three main American automakers have been struggling for years. Despite federal funds, the companies are having ongoing problems. Some economists estimate that U.S. automakers must charge an additional $2,000 per vehicle because of labor costs, and high medical and retirement benefit expenses. With this additional overhead, it has become almost impossible for American automakers to stay competitive. Compared with August of 2009, auto sales have decreased by 21% over the past year, and between July and August of 2010, sales fell by 5%. These disappointing numbers have led many economists to call for another Cash-for-Clunkers program, or another type of financial incentive to purchase a new car.

Unemployment

It is impossible to ignore unemployment problem in this country, with thousands of jobs being lost every month. According to the Labor Department the economy lost 100,000 jobs in August, which increased the unemployment rate from 9.5% to 9.6%. The ongoing unemployment problems are commonly cited as the main delay in economic recovery, and although we might see seasonal job creation over the next few months, many experts predict that we will not see any significant employment gains until 2012.

Home sales

Earlier in the year the housing market was showing some signs of improvement, but after the housing credit expired in June, home sales decreased quickly. In July, home sales were down over 25% compared with July of 2009. To make matters worse, home values are also continuing to plummet. Experts are even predicting another 5 to 10% decline in house prices over the next few months. Fortunately, as Neil Irwin or the Washington Post explains, housing activity has already decreased so much that it would be hard for it to hurt future economic recovery. Between 2006 and 2009 home sales fell from 2.3 million annually to under 500,000. This sudden drop was a major strain on the economy, but even if construction levels decrease further it is very unlikely to have the same impact on our economy as the collapse between 2006 and 2009.

Local Double Dips

One of the largest fears about the U.S. economy is the possibility of a double-dip recession. Most economists agree that this is unlikely on the national level. However, many state and local governments are at a serious risk of slipping into a second, more severe recession. Several government agencies across the country are facing unbalanced budgets, and have turned to drastic tax increases to generate revenue. Many economists suggest that these tax hikes could have a negative impact as consumers are left with less money to spend in their local economy.

Bank Failures

Last month the Federal Deposit Insurance Corporation (FDIC) announced that 829 financial institutions (or 1/10th of the banks in this country) were on their problem list. These banks are on the edge of going under, and there have already been 118 bank failures this year. There were 140 total bank failures in 2009, and it does not look like this trend is going to stop anytime soon. The problems facing financial institutions in the U.S. has a significant impact on the overall economy. When banks are struggling lending becomes more difficult, between April and June loan and lease balances fell another 1.3%. Until businesses have easier access to credit, unemployment problems will persist and the economy will continue to struggle.

Car Deals Disappear As Dealers Rethink Promotions

Over the past couple of years, consumers have gotten used to dozens of promotions and incentives to purchase American made vehicles. However, as this article from the Huffington Post explains, many car dealerships and automakers are beginning to rethink huge promotions to increase profits.

For years, Americans shopping for cars were treated to all sorts of deals and incentives, especially at the end of summer. Think Cash for Clunkers, which paid up to $4,500, or promotions that offered employee discounts to everyone.

Those days are over.

Deals are becoming more scarce because automakers, newly lean and profitable, are holding the line on those profit-eating promotions. In July, they offered $1,000 less in incentives per car than a year earlier, according to Edmunds.com.

And with no one expecting the government to offer a repeat of the Clunkers program, get ready for fewer discounts on your next car.

"This may be as good as it gets, and get used to it," says Jeff Schuster, the executive director of forecasting for J.D. Power and Associates.

As a result, U.S. auto sales are at a standstill, with potential buyers waiting for more deals but automakers resisting. The industry expects this to be the worst August in 18 years, with sales barely over 1 million cars and trucks. Sales are expected to fall 3 percent from July, according to car-pricing website Truecar.com.

GM's Auto Sales in China Top US for First Time

From CNBC.com:

General Motors' first-half sales in China, the world's biggest auto market, exceeded sales in its home U.S. market for the first time, according to data released on Friday.

GM's China auto sales jumped 48.5 percent to 1.21 million units in January through June, compared with the 1.08 million light vehicles it delivered in the U.S. over the same period, company data showed.

China overtook the U.S. as the world's top auto market in 2009, helped by government incentives and a 4 trillion yuan ($590 billion) economic stimulus package.

GM's June China auto sales rose 23.2 percent to 176,486 units.

Sales of Shanghai GM, the Detroit automaker's flagship car venture with SAIC Motor, came to 71,782 units, up 18.9 percent on a year earlier.

Retail sales unexpectedly dip 0.1 percent in July

The U.S. Commerce Department made an unwelcome announcement today stating that despite the prediction of an increase, retail sales in the U.S. actually dropped by 0.1% last month. This number would have been much worse if it were not for auto sales, which actually rose by 2.4% due to the Cash for Clunkers program. Check out the following story on this unexpected revelation courtesy of the Associated Press.

The Commerce Department said Thursday that retail sales fell 0.1 percent last month. Economists had expected a gain of 0.7 percent.

While autos, helped by the start of the Cash for Clunkers program, showed a 2.4 percent jump -- the biggest in six months -- there was widespread weakness elsewhere. Gasoline stations, department stores, electronics outlets and furniture stores all reported declines.

The July dip was the first setback following two months of modest sales gains. Excluding autos, sales fell 0.6 percent, worse than the 0.1 percent rise economists had forecast.

Gas station sales plunged 2.1 percent, due more to falling pump prices than weak demand. Excluding the drop at gas stations, retail sales would have posted a modest 0.1 percent increase.

Department store sales fell 1.6 percent and the broader category of general merchandise stores, which includes big chains such as Wal-Mart Stores Inc. and Target Corp., posted a decline of 0.8 percent.